Bankruptcy is the legal method for a debtor to "discharge", repudiate, cancel or relieve debt. The primary purposes of the bankruptcy are to relieve the honest debtor from the weight of oppressive indebtedness and to provide the debtor with a fresh start. During the bankruptcy process, the Bankruptcy Law stops all collection efforts against the debtor. The Bankruptcy Law regulates what type of bankruptcy you must file, what bills can be eliminated, how long payments may be extended, what possessions you may keep, and all other details concerning bankruptcy.
The bankruptcy process involves evaluating your particular financial situation and determining what type of bankruptcy best meets your needs. This depends on the type of debts and assets you have. It also depends upon the amount of your monthly income. After all of the facts are analyzed, the appropriate type of bankruptcy is chosen, and the process of preparing your bankruptcy case begins.
Preparation of your case involves filling out a client questionnaire, which lists all of your assets, debts, monthly income and monthly expenses, and supplying the additional information requested on the checklist. The client is then interviewed to make sure all necessary information has been supplied. A bankruptcy petition is prepared and it is reviewed, corrected and signed by the client.
The client then undergoes a credit counseling session, conducted by an approved independent credit counseling agency, during which an independent credit counselor outlines the opportunities for credit counseling and assists the client in performing budget analysis. The credit counselor then issues a certificate of completion of the required credit counseling. That certificate, the bankruptcy petition, and the last two months of income information are then filed with the bankruptcy court and the case begins. The bankruptcy court notifies all listed creditors of the filing of your case. This immediately stops all pending lawsuits or collection efforts. The bankruptcy court protects you from your creditors while your bankruptcy case is in progress.
Most of the work in bankruptcy is completed before filing your case. After filing, in the vast majority of cases, the only remaining requirement is for the client to attend a class on personal financial management and a "Meeting of Creditors." The meeting of creditors takes place in either Jefferson, Youngstown, or Cleveland, depending upon which county you reside in. The class on personal financial management is conducted locally or can be attended via the Internet or by telephone.
You must attend the meeting of creditors. It is really not a meeting at all - but an interview conducted under oath by a person who works for the bankruptcy court, called a trustee. Creditors are allowed to attend the meeting of creditors to ask what you intend to do with their debt, but they normally do not attend because they already know what you intend to do - not pay.
At the meeting of creditors, when your name is called you go into a conference room with your attorney. You are sworn in and you must present a picture ID and a Social Security card to prove your identity. You then must verbally respond to a series of simple yes/no answer questions. The purpose of the questions is to verify that the information you provided in your bankruptcy petition is truthful. The trustee is polite and business-like. They are normally in a hurry because they have to handle four cases every half-hour. They are also paid a fixed fee for each interview they conduct. You do not have to prepare for the meeting of creditors. You simply appear at the time specified, listen to the questions asked, and answer truthfully. You are given plenty of notice regarding the date and time of the meeting of creditors. This is nothing like the things you see on TV or the movies about courtroom drama. It is very routine, and actually quite boring.
After your bankruptcy case is filed, you must complete a personal financial management class provided by an approved independent credit counseling agency. Upon completion of that class, another certificate of completion is issued and filed with the bankruptcy court. The court cannot grant a discharge of a person's debt unless the certificate of attendance of the personal financial management class is filed.
After attending the meeting of creditors, you must wait an additional two months. This gives creditors time to object to the cancellation of their debt if they have a good reason. They almost never have a good reason, so objections are rare. If you are completing a Chapter 7 bankruptcy case, approximately two months after your meeting of creditors, and approximately four months after your case if filed, the bankruptcy court issues a notice of discharge of your debts. If you are completing a Chapter 13 bankruptcy case, your discharge is issued after completion of your Chapter 13 payment plan, which can last between three and five years. Normally, the case officially closes with the issuance of a final decree about a month after the discharge. The discharge officially cancels your debts. The final decree officially closes your case.
The fact that you obtained a Chapter 7 discharge is noted on your credit report and stays on that report for ten years. A Chapter 13 discharge stays on your credit report for seven years.
Years ago, it was extremely difficult to get credit again after bankruptcy. That is not true today. People who have filed bankruptcy are now being sent credit cards within months after receiving their discharge. They obtain new car loans, sometimes immediately after their case is completed. They can get new mortgage loans in a year or so after discharge. This is not good if you want to achieve your goal of financial freedom. Remember, there is no such thing as a good debt. So be extremely careful about taking on new credit obligations.